Cenovus says widest Canadian crude discount since 2018 temporary, will not change production plans

Cenovus Energy (CVE) said Wednesday it will not change its production plans in response to the unexpectedly wide discount on Western Canadian crude, which the company believes is temporary.

Western Canadian Select's discount in Alberta to a monthly average of WTI futures rose to $31.70/bbl on Tuesday, the widest since November 2018, and the secondary benchmark Canadian Cold Lake crude’s discount on the U.S. Gulf Coast similarly reached eight-year highs at $23.10/bbl, according to Bloomberg.

In 2018, the wide discount on WCS crude prompted Alberta's provincial government to ​order its biggest producers to curtail output to bring the price blowout under control.

Cenovus (CVE) CEO Jon McKenzie said the current weakness is different because it is not driven by a lack of Canadian pipeline capacity but by global factors; in particular, high freight rates have sharply cut export demand for Canadian barrels being re-exported from the U.S. Gulf Coast.

While Cenovus (CVE) does not know when the ​situation will normalize, McKenzie said he sees the wide differentials as temporary, so "we will continue to execute our long-term plans, and continue to execute on our strategy and operate well through this," the CEO said on the company's earnings conference call.

The company said its Q3 production topped 1M boe/day for the first time, jumping 23% to 1.024M boe/day from 832.9K boe/day in the year-earlier quarter, as its Christina Lake, Foster Creek, and Sunrise oil sands projects all hit quarterly records.

Cenovus (CVE) shares fell 7.6% on Wednesday, declining with most oil producers as crude prices plunged, even as Q3 net profit nearly tripled to C$3.36B (~US$2.4B), or C$1.83/share, from C$1.29B, or C$0.72/share, a year ago, while consolidated revenues fell to C$16B from C$17.4B a year earlier, missing the analyst consensus estimate of C$16.87B.

Q3 adjusted refining margin surged to C$55.52/bbl from C$29.83/bbl in Q2.